E-book sales killing publishing industry?

A new study finds that rising e-book sales are having a direct negative impact on publishing revenue

When considering the fight between Amazon and publishers over the price of e-books, it’s easy to paint the giant book publishers as the bad guys. They want higher prices for an intangible digital book—but it seems obvious that if publishers could produce books without spending money on resources like ink and paper, then the books should be priced lower. But as it turns out, those kinds of physical resources only amount to a fraction of a publisher’s overall budget. Most of the money goes to the people who make it happen—the authors, editors, publicists, marketers, and so on. And as anyone in publishing will tell you: there’s no money in publishing. But a new report authored by iSuppli analyst Steven Mather sheds light on the real challenges facing publishers.

While e-book sales are predicted to soar by 40% over the next four years, those rising sales will have a direct impact on traditional publishing, according to the study. To be exact: revenues for U.S. publishers (for both print books AND e-books) will decline at a compound annual growth rate (CAGR) of 3% over the next four years. The soaring e-book sales won’t be enough to make up for the decline in physical book sales, which will decline at a compound annual growth rate of 5% between now and 2014, Mather argues.

The net effect: book publishing revenue will drop to $22.7 billion in 2014 from $25 billion in 2010.

Of course—the question is why? If e-book sales are so popular, why is book publishing revenue predicted to decline? Because e-book prices are still an average of 40% lower than print book prices, despite publishers’ recent threats to abandon Amazon if it continues to undercut print book prices. Last year, Macmillan threatened to pull its books from Amazon if the e-retailer didn’t raise its e-book prices from the rock bottom $9.99 flat rate for all Kindle e-books. Amazon responded by pulling Macmillan’s books itself, but as other publishers rallied behind Macmillan—HarperCollins, Hachette, Simon & Schuster, and Penguin—Amazon was left no other choice but to let the publishers set their own prices.

Nevertheless, e-book prices around the world are still undercutting print book prices, and the matter is compounded by the fact that in 2014, e-books will account for 13% of all publishing revenue, compared to 3% in 2010.

“These trends are expected to spread throughout the world as non-U.S. sales of e-readers increase,” analyst Steven Mather posits.

While book publishing tanks, global shipments of e-readers are expected to more than triple by 2014 to 30 million units from 9.7 million in 2010, according to IHS iSuppli research. This is actually lower than the consensus prediction of 43.4 million units shipped by 2014.